Hong Kong property slump worries investors
HONG KONG: In a city that saw demand propel property prices to a record last year, the estimate that transactions reached a 25 year-low in Hong Kong shows how quickly sentiment has turned. Home prices have slumped almost 10 percent since September and monthly sales in January fell to the lowest since at least 1991, according to Centaline Property Agency Ltd. Amid a spike in flexible mortgage rates this month and anemic demand for new developments, the low transactions volume for January is the latest evidence that prices have further to fall. "The danger is that when sentiment turns negative, it's very hard to turn things around," Michael Spencer, Deutsche Bank AG's Hong Kong-based Asian chief economist, said in a telephone interview. "Developers realize they missed the best opportunity to sell." Hong Kong's property market has been showing signs of weakening amid a rising supply of homes, higher short-term interest rates and slowing growth in China. Developers have been slow to make outright price cuts to move real estate while would-be buyers are delaying purchases in anticipation of further price declines, creating a standoff that could put more pressure on prices and drag down the city's economy. Falling property prices may create a negative wealth effect on consumption by prompting buyers to cut back on their purchases, Deutsche Bank's Spencer said. That could deal a huge blow to an already vulnerable economy where half the population owns homes and consumption accounts for nearly two-thirds of gross domestic product.